Electronic signatures legal in real estate deals starting July 1st

Editor's Note: This article was originally published prior to July 1st.

Next week marks a sea change in Ontario real property law when it becomes legal to electronically sign agreements of purchase and sale, as well as deeds and mortgages creating or transferring ownership in land.

Contracts for the sale or lease of land have had to be in writing and signed for more than 300 years. This requirement under Ontario’s Statute of Frauds dates back to a 1677 English law.

In Ontario, England and elsewhere, oral contracts for the sale or lease of land are not enforceable. The law prevents the possibility of a non-existent agreement being “proved” by perjury or fraud.

When Ontario’s Electronic Commerce Act was introduced in 2000, it allowed certain documents to be signed with electronic signatures. But documents that create or transfer interests in land and require registration to be effective against third parties were exempted from the law and still needed handwritten signatures.

As long as those agreements were signed by hand, they could still be transmitted from one party to another by electronic means such as fax, scanning or email.

All this changes on Canada Day when an amendment to the Electronic Commerce Act comes into force. It will permit buyers and sellers of land, as well as borrowers and lenders, to sign agreements, deeds and mortgages by electronic means.

The amendment to the legislation was passed as part of the 2013 Ontario budget.

Even though electronic signatures will now be legal in the real estate context, those signatures are only effective if it can be proved that the signatures are reliable for the purpose of identifying the person signing, and the attachment of a signature to the electronic document is also reliable.

Since the law does not define how to determine whether a signature is reliable, it is up to individual real estate agents and lawyers using electronic signatures to satisfy themselves that the legal requirements have been met.

I expect that the use of electronic signature platforms like DocuSign (docusign.com) will become popular among real estate agents and lawyers anxious to jump on the electronic bandwagon.

Some members of the real estate community are enthusiastic about being able to use electronic signatures. “Agreements of purchase and sale can be amended, initialed, faxed, scanned and emailed numerous times over a transaction and often, by the time, the final version is created, the agreements can be difficult to read. Electronic handling of the agreement where consumers amend and sign using their computers or tablets will eliminate this cumbersome process,” said Phil Dorner, president of the Ontario Real Estate Association, in 2013.

Others, including me, are more skeptical, and concerned the new procedure could result in more fraud and litigation.

Banks and trust companies may not be overly enthusiastic about having mortgages signed without use of a pen. B2B Bank has recently implemented a procedure which requires mortgages to be signed in the physical presence of a lawyer.

A 2012 decision of the New Brunswick Court of Appeal in the case of Druet v. Girouard illustrates the dangers of consummating purchase agreements electronically. The parties were negotiating the purchase and sale of a Moncton condominium. They exchanged a series of emails in which they agreed on the price and that a formal agreement would follow.

On a preliminary application, a judge ruled that the emails constituted a binding agreement. The New Brunswick Court of Appeal later reversed the decision and concluded that even though the seller accepted a counter-offer, the parties lacked the intention to enter into a binding agreement.

After Ontario’s law changes next week, there will no doubt be a phase-in period as everyone adjusts to the new regime.

Bob Aaron is Toronto real estate lawyer. His Title Page column appears on this blog, Move Smartly, and in The Toronto Star. You can follow Bob on Twitter @bobaaron2 and at his website aaron.ca Email Bob